Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)

July 24, 2015
IF10203

July 24, 2015
Social Security: The Windfall Elimination Provision (WEP) and
the Government Pension Offset (GPO)
The Windfall Elimination Provision (WEP) and the
Government Pension Offset (GPO) are two separate
provisions that reduce standard Social Security benefits for
people who have pensions from employment that was not
covered by Social Security, such as some employment in
state, local, and federal government.
The Windfall Elimination Provision
How Does the WEP Work?
The WEP applies to most people who receive both a
pension from uncovered work and Social Security benefits
based on fewer than 30 years in covered employment. It
reduces a worker’s standard monthly Social Security
benefit by up to 55%, with a maximum reduction of $413.
The Social Security benefit formula is designed to benefit
workers with low average lifetime earnings in Social
Security-covered employment. Those workers receive a
benefit that is a larger proportion of their earnings than do
workers with high average lifetime earnings. The benefit
formula does not distinguish, however, between workers
who worked for many years at low wages in Social
Security-covered employment and those who worked
briefly in Social Security-covered employment at higher
wages. Under the benefit formula, workers who split their
careers between Social Security-covered and non-covered
employment would therefore receive higher total benefits—
sometimes referred to as a “windfall”—than would exist in
the absence of the WEP.
The standard Social Security benefit formula applies three
progressive factors—90%, 32%, and 15%—to three
different levels, or brackets, of a worker’s average indexed
monthly earnings (AIME), which is a measure of lifetime
earnings. The result is the “primary insurance amount”
(PIA), which is the base benefit amount. In 2014, the PIA is
determined as follows:
Table 1. 2014 Social Security Benefit Formula
Factor
Portion of Average Indexed Monthly Earnings
90%
of the first $826 of AIME, plus
32%
of AIME over $826 and through $4,980, plus
15%
of AIME over $4,980
For people who worked in employment covered by Social
Security for 20 or fewer years, the WEP reduces the first
factor from 90% to 40%, resulting in a maximum reduction
of $ 413 (90% of $826, compared with 40% of $826). For
each year of work in covered employment in excess of 20,
the first factor increases by 5%. For example, the first factor
is 45% for those with 21 years in covered employment. The
WEP factor reaches 90% for those with 30 (or more) years
in covered employment and at that point is phased out.
What is the Rationale for the WEP?
The Social Security benefit structure is progressive: It helps
workers who spent their working lives in low paying jobs
by providing them with a benefit that replaces a higher
proportion of their earnings than the benefit that is provided
to workers with high earnings. Without the WEP, people
who spent only part of their careers in covered employment
would be provided with the same benefit as those who had
lower annual earnings but had a full career in covered
employment. The WEP removes this advantage.
How Many People Are Affected by the WEP?
According to Social Security Administration data, as of
December 2014, 1.6 million people, or about 3% of all
Social Security beneficiaries, were affected by the WEP.
The vast majority of those—1.4 million people—were
retired-worker beneficiaries, which was about 4% of all
retired-worker beneficiaries. The remainder were disabledworker beneficiaries and family members of workers.
The Government Pension Offset
How Does the GPO Work?
The GPO reduces spousal and widow(er)’s benefits
received by people who receive a pension from
employment not covered by Social Security. The Social
Security benefit is reduced by an amount equal to twothirds of the pension.
Social Security pays benefits to spouses of retired and
disabled workers and to widow(er)s of deceased workers. In
general, the spousal benefit equals 50% of the worker’s PIA
and the widow(er)’s benefit equals 100% of the worker’s
PIA. Those benefits are intended to help support financially
dependent spouses.
Under its “dual entitlement” rule, Social Security does not
provide both a full retired-worker and a full dependent
benefit to the same individual. In general, beneficiaries
receive either a benefit based on their own work or the
dependent benefit, whichever is larger.
www.crs.gov | 7-5700
Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)
The actual benefit for a spouse or widow(er) is figured by
reducing the dependent benefit by 100% of the amount of
his or her own worker’s benefit.
Table 2 shows three scenarios in which “Mary,” who is
eligible for a spousal benefit,
1. works in employment covered by Social
Security,
2. works in noncovered employment, if the
GPO were repealed, and
3. works in noncovered employment and is
subject to the GPO, as under current law.
The benefit is lowest in the first scenario and highest in the
second scenario.
Table 2. “Mary’s” Benefit in Hypothetical Scenarios
“Mary”
works in
Social
SecurityCovered
Position
“Mary” works in
Non-Social
Security-Covered
Position
Without
GPO
With
GPO
1) Retired-worker
benefit (based on Mary’s
earnings record)
$900
$0
$0
2) Non-Social Securitycovered pension
$0
$900
$900
3) Maximum spousal
benefit (50% of husband’s
benefit)
$1,000
$1,000
$1,000
4) Reduction in spousal
benefit (from line 1)
$900
n.a.
n.a.
5) Reduction in spousal
benefit due to GPO (2/3
of line 2)
n.a.
n.a.
$600
6) Net spousal benefit
$100
$1,000
$400
“Mary’s” total benefit
(lines 1+2+6)
$1,000
$1,900
$1,300
How Many People are Affected by the GPO?
About 630,000 Social Security beneficiaries, or about 1%
of all beneficiaries, had spousal or widow(er)’s benefits
reduced by the GPO in December 2014. (Additional people
were likely affected indirectly, because some people who
were potentially eligible for spousal or widow(er)’s benefits
were probably deterred from filing for them because of
their expectation that the GPO would eliminate the spousal
or widow(er)’s benefit). Of the people directly affected by
the GPO, 56% were spouses and 44% were widow(er)s.
Legislative History
The WEP was enacted as part of Social Security
Amendments of 1983 (P.L. 98-21). The 40% WEP formula
factor was the result of a compromise between a House bill
that would have substituted a 61% factor for the regular
90% factor and a Senate proposal that would have
substituted a 32% factor. Before that, the standard benefit
formula applied to workers regardless of whether they
received a pension from uncovered employment.
The GPO was originally established in 1977 (P.L. 95-216)
and replaced a “dependency test” for spousal benefits that
had been in law since 1950. Under the 1977 law, the Social
Security spousal or widow(er)’s benefit was reduced by
100% of the non-covered government pension, in effect
treating the entire pension as equivalent to a Social Security
worker’s benefit. The offset factor was reduced from 100%
to two-thirds by the Social Security Amendments of 1983.
One section of the House version of this law proposed that
the amount used in calculating the offset be one-third of the
government pension. The Senate version contained no such
provision and would therefore have left standing the 100%
offset that existed at the time. The conferees adopted the
two-thirds offset that is now law.
Dozens of bills to repeal or amend the GPO and WEP have
been introduced since 1983, but no other legislative action
has been taken on the issue. For example, the Social
Security Fairness Act, which would completely repeal both
the GPO and the WEP, has been introduced in every
Congress since 2001. No legislative action on the bill has
been taken.
Related CRS Reports
For more information, see CRS Report 98-35, Social
Security: The Windfall Elimination Provision (WEP), and
CRS Report RL32453, Social Security: The Government
Pension Offset (GPO), both by Gary Sidor.
Source: Illustrative example provided by CRS.
Notes: n.a. = not applicable.
What is the Rationale for the GPO?
When a spouse or widow(er) receives a pension based on
uncovered federal, state, or local government employment,
the dual entitlement rule does not apply, so the GPO was
adopted with a similar goal. Under the GPO, spousal and
widow(er)’s benefits are reduced by two-thirds of the
pension from non-covered government employment.
For general background on Social Security, see CRS Report
R42035, Social Security Primer, by Dawn Nuschler.
Gary Sidor, gsidor@crs.loc.gov, 7-2588
www.crs.gov | 7-5700
IF10203